The Direct Debit Guarantee

The Direct Debit Guarantee protects customers from payments taken in error. In the case of any incorrect or fraudulent payments, the payer is entitled to a full and immediate refund from their bank.

The Direct Debit Guarantee (or the “Direct Debit Indemnity”) is the Direct Debit
scheme’s customer protection. The Guarantee protects customers against payments
made in error or fraudulently, making Direct Debit the UK’s safest payment method.
The full text of the Direct Debit Guarantee is available
below.

This guide describes the protection your customers receive, your obligations
under the Direct Debit Guarantee, and how to dispute an invalid refund claim.

The Direct Debit Guarantee rules

The Direct Debit Guarantee protects customers in three ways:

Notifications - customers must be notified in advance of each payment.
Failure to follow notification requirements may result in a merchant being barred
from the scheme. This is typically 10 working days before a payment is taken but a
shorter notice period can be agreed. See our guide to taking payments
for more details.

Refunds - customers are entitled to a full and immediate refund of any
payment that has been taken in error.

Each of the above protections are enforced by the banks and so form an
intrinsic part of the Direct Debit scheme. Refunds and cancellations are
processed by the payer's bank without prior discussion with the merchant.

The indemnity claim process

Under the Direct Debit Guarantee, the rules around refunds are particularly strong.
A customer can request a refund (known as an "indemnity claim") for any payment,
and provided the bank agrees with the validity of their indemnity claim, the customer
will receive an immediate refund. Further, there is no time limit on when indemnity
claims can be made.

To raise an indemnity claim, a customer must notify their bank that they
believe there has been an error. This "error" is defined broadly, and includes
any dispute about the amount taken.

The customer's bank will generally accept the word of the payer, and if they do
will immediately credit them with a full refund. They will then notify the
merchant of the indemnity claim via a DDICA message with a reason code,
available through Bacs.
The amount refunded to the customer will be reclaimed from the merchant
automatically 14 working days later.

How to challenge a Direct Debit Guarantee indemnity claim

Indemnity claims can be challenged prior to settlement if the paying bank makes
one of the following mistakes:

The indemnity claim has been directed to the wrong service user

The same indemnity claim has been submitted more than once

The reference was not included or was incorrect

The amount of the indemnity claim does not correspond to the payment made

If one of the above apply, you may be able to challenge the indemnity claim.

Contact details for the challenge process are provided on the BACS website but
you will need to log onto the password protected area of the site. Once you are
logged in additional links will appear in the left hand navigational menu
below the "DDIC" tab.

How to dispute an indemnity claim

Merchants may not agree that an indemnity claim should be upheld. Within the
Direct Debit scheme there is limited scope for appeal, but fraudulent
indemnity claims can be dealt with in the courts.

The only grounds to dispute an indemnity claim within the Direct Debit scheme
itself are:

The customer's bank has made an error in raising the indemnity claim. For
example, the customer's bank may have mistakenly sent the same indemnity claim
twice.

The customer's bank failed to inform the merchant after the customer's
mandate was cancelled, and then allowed payment to be taken under the
cancelled mandate. In this case the customer's bank are liable for the
indemnity claim, as they are responsible for it.

The customer claims they never signed a Direct Debit Instruction, but the
merchant can produce a signed paper DDI, which the customer then accepts.

Such counterclaims must be submitted to your sponsor bank within 14 working
days of an indemnity claim being settled. Any counterclaims made after this
deadline will be automatically rejected.

To make a counterclaim under the Direct Debit scheme you will need to provide
your sponsor bank with the following details:

The date and amount of the indemnity claim

Your bank account details, SUN and reference number

A copy of the indemnity claim

If the claim succeeds, it can take another 120 days for the funds to be
refunded to you.

Given the limited scope for appeals within the Direct Debit scheme, most
disputes happen outside of it. The Direct Debit Guarantee does not impact any
contractual agreements between a merchant and their customer, and fraudulently
charging back a Direct Debit payment is a criminal offence, covered by the
2006 Fraud Act.

The Direct Debit Guarantee in practice

In practice, less than 0.2% of all Direct Debit payments are refunded via the
Direct Debit Guarantee. This rate, however, varies significantly depending on
business type, as does the severity of the indemnity claim.

The risk of indemnity claims under the Direct Debit Guarantee is particularly
high for businesses selling:

High value goods such as cars, where the merchant stands to lose a lot
from a single fraudulent indemnity claim.

Liquid assets such as currency or loans, which could be a target for
fraudulent indemnity claims.

Services likely to see indemnity claims, such as gambling and payday loan
services.

The risk of facing an indemnity claim can be minimized by:

Giving proper advance notice. If customers are provided the required advance
notice they will be able to raise any issues or cancel the payment before it is made.
For more information see our guide to advance notice.

Providing good customer service. Clear contact information and good, easy to
reach customer service will encourage customers to bring any complaints to you before
seeking a refund from their bank.

Following the Direct Debit scheme rules. Make sure you and your provider precisely
follow the Direct Debit scheme rules - including any updates.

The Direct Debit Guarantee in action at GoCardless

GoCardless helps you manage indemnity claims. If a claim is made by one of
your customers we will notify you immediately. We will then work with you and
your customer to understand the reason, and retake the payment if appropriate.

The GoCardless processes are designed to minimise the risk of an indemnity claim
and to make sure you always abide by the Direct Debit Guarantee and the Direct
Debit scheme rules.

These include:

Invoices sent in advance for you. Under the GoCardless terms and conditions
customers agree to a three day notice period. GoCardless automatically notifies
your customers via email 3 working days in advance of a payment.

Provide clear contact information and good customer service. GoCardless offers
a first stop for customer support helping you to manage any indemnity claims from
your customers.

Follow the Direct Debit scheme rules. GoCardless keeps up to date with all
Direct Debit scheme rules. We precisely follow the rules and help you do the same.

To find out more about collecting Direct Debit payments with GoCardless visit
GoCardless.com.

GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, registration number 597190, for the provision of payment services.

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